Trouble for Hospitals & Health Plans In States That Nix Medicaid Expansion

In nonconforming states, health plans will miss out on a bonanza of new members and hospitals might be on the hook for uncompensated care

John Carroll

While the Supreme Court’s majority opinion left the Affordable Care Act largely intact, it stripped away one provision that some of the most potent forces in the health care industry had struggled to maintain.

The federal government, the court said, could not make good its threat to withhold all Medicaid funding unless a state agreed to accept a plan that would add about 17 million members coast to coast. States that choose not to participate would have lost the incentive for expansion.

In an instant, some of the most prominent governors in the country declared that they would take advantage of this Get-Out-of-Medicaid-Free card.

“Florida will opt out of spending approximately $1.9 billion more taxpayer dollars required to implement a massive entitlement expansion of the Medicaid program,” declared Rick Scott, the Republican governor of Florida. Rick Perry in Texas and four other governors echoed Scott, all in states where the ACA is unpopular. Officials in at least 25 states say they are biding their time.

In general the red (Republican) states opposed the expansion and the blue (Democrat) states support it. A stretch of states in the Deep South is offering the most vocal opposition.

Billions at stake

But the political broadsides never rattled investors on Wall Street.

Just days after the decision, WellPoint announced it would buy Amerigroup, one of the biggest managed care players to operate in Medicaid, in a deal that valued the target company at close to $4.5 billion and leaves the merged company with 4.5 million Medicaid members. In a swift follow-up, shares of WellCare Health Plans ( a big player in the battle state of Florida), Molina Healthcare, and Centene — took off as investors eagerly placed their bets on more such buyouts in the Medicaid field.

As long as the discussion stays focused on the business opportunity, there really isn’t much dissension about the Medicaid expansion at all.

The analysts — and the companies involved — are betting that come what may, the business and political current will leave the top managed care plans with swelling business. And the backlash against the Medicaid expansion might not be all it’s cracked up to be.

A done deal

“There are going to be billions of dollars of federal money flowing into the states, and we think the states are going to have to take it,” Amerigroup CEO Jim Carlson told reporters on the conference call set up to explain the rationale for the merger. “We think once everybody settles down and really understands this from a budgetary standpoint and really from a human standpoint,” the expansion will be a done deal.

Some industry leaders, meanwhile, are also betting that once the 2014 start date arrives, most states will leave their concerns aside and give a green light to the expansion.

“The vast majority of states will pick it up, because it’s the right thing to do. It makes fiscal sense,” says Meg Murray, the CEO of the Association for Community Affiliated Plans, a group of not-for-profits that cover more than half of the Medicaid members in health plans today.

Supporters of the expansion all point to a simple formula: For the first three years, 2014, 2015, and 2016, the federal government will pay all of the expansion cost. And that is not a moveable feast. Lose even one year signing up and they lose the entire incentive. After that three-year introduction rate, a state’s share of the burden rises to a seemingly modest 10 percent.

“I find it hard to believe that states will be able to leave that money on the table,” says Murray. Public hospitals face the end of subsidies for care of the uninsured. If their states don’t participate in the expansion, they won’t get the compensation of a large increase in the number of Medicaid patients.

The states, though, have been far from sanguine about their financial status. In Florida, a 1 percent increase in Medicaid costs $130 million a year. In recession-racked states, even 10 cents on the added dollar can be seen as an excessive burden.

Let states decide

America’s Health Insurance Plans hasn’t taken a position on the state debate over the Medicaid expansion. “That is for states to decide,” says spokesman Robert Zirkelbach. But there’s no question, he adds, that health plans have played a big role here. “We have always supported a strong safety net to ensure nobody falls through the cracks. And … our members have a long track record of providing high-quality care to low-income Americans in the Medicaid program. The programs and services they provide have helped to improve care for beneficiaries and reduce costs for states.”

The American Hospital Association, likewise, simply referred questions on the Medicaid expansion issue to state organizations. In Texas, the state hospital association wants the state to take the money.

“We must be clear that these federal funds come from taxes Texans will pay. If we don’t take the money, other states will,” writes Dan Stultz, CEO of the Texas Hospital Association. “More than $100.1 billion in these federal funds could be available to Texas from 2014 through 2024 with just $15.6 billion put up in matching funds by the state, according to the Texas Health and Human Services Commission. With a strained state budget, it’s hard to imagine addressing the uninsured problem in Texas without leveraging these federal funds, which now will go to other states.”

But despite the headlines, or perhaps in part because of them, the grass roots voices you might expect to take a pointed public position are largely muted.

“We’re still studying the options along with the policymakers. We respect the governor’s position on this and we understand his policy positions,” says Michael Garner, the CEO of the Florida Association of Health Plans. “We are to a large extent wanting to be a resource for all of the policymakers at the table.”

For now, the group is staying carefully neutral in a state where legislators have already mandated that the vast majority of the 3.1 million Medicaid members will shift to health plans no later than early 2015. Another 1.5 million members could be added if the expansion goes through.

Tremendous opportunity

For some longtime political observers, though, the low-key response makes perfectly good political sense — at least for the short term. Conservatives who could be expected to buck party leaders in the governor’s mansion aren’t likely to take a bold position at this stage of the game. Republican majorities in the House and Senate could derail the ACA, especially if a Romney administration is there to make good on pledges to rip it out “by the roots.”

Why take painful stands now in places like Austin and Tallahassee, when national affairs could soon trump local issues and make the sacrifice unnecessary and unrewarding?

Another reason why Medicaid continues to look positive for managed care is the new opportunity presented by poor old people who qualify for both Medicare and Medicaid. A number of states — California is one — have seen bright prospects for managed care in this population, hoping that plans’ organizational skills can help reduce the disproportionate share of total costs that people with dual eligibility account for.

“The dual-eligible expansion opportunity is tremendous and was a driving force for this transaction,” WellPoint CEO Angela Braly told analysts.

As long as the discussion stays focused on the business opportunity, there really isn’t much dissension about the Medicaid expansion at all.